Advisory Opinion 1978-15A

Dear Mr. Melton, Mr. Rizzo, and Mr. Carey:

This is in reply to your request for an advisory opinion submitted by Mr. Michael W. Melton on behalf of Ms. Joan Levine, an employee of Hall & Levine Advertising, Inc. (H&L). Your inquiry concerns the applicability of title I of the Employee Retirement Income Security Act of 1974 (ERISA) to an individual retirement account which Ms. Levine proposes to establish. We regret the delay in responding to the inquiry due to the volume of correspondence concerning ERISA.

In connection with your request, you have made the following representations. H&L is a wholly-owned subsidiary of Foote, Cone & Belding/Honing (FCB) and the employees of H&L have participated in FCB's profit sharing plan and its stock purchase plan (the FCB plans). FCB has entered into various agreements to sell all of the H&L stock, and the participation of the H&L employees in the FCB plans has been terminated. Each employee of H&L who participated in the FCB plans, including Ms. Levine, has received or will receive a distribution of the full amount credited to his or her account under those plans.

Ms. Levine intends to transfer the amounts which have been distributed to her by the FCB plans (except those amounts considered to have been contributed by her to the FCB stock purchase plan) into an individual retirement account (IRA) described in section 408(a) of the Internal Revenue Code of 1954 (the Code). Ms. Levine intends to direct the trustee or custodian of the IRA to purchase shares of H&L stock from FCB for the fair market value. It is contemplated that the IRA may have up to 100% of its assets invested in H&L stock.

You have inquired whether the proposed IRA would constitute an employee pension benefit plan as defined in section 3(2), title I of ERISA. Section 3(2) provides, in pertinent part, that an employee pension benefit plan is any plan, fund, or program established or maintained by an employer or by an employee organization, or by both, which provides retirement income to employees. An employee pension benefit plan is, with certain specified exceptions, covered by the provisions of title I of ERISA.

Section 2510.3-2(d) of regulations issued by the Department of Labor clarifies the definition of employee pension benefit plan with regard to individual retirement accounts. Section 2510.3-2(d)(1) provides:

For purposes of Title I of the Act and this chapter, the terms "employee pension benefit plan" and "pension plan" shall not include an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Internal Revenue Code of 1954 (hereinafter "the Code") and an individual retirement bond described in section 409 of the Code, provided that -

1. no contributions are made by the employer or employee association;
2. participation is completely voluntary for employees or members;
3. the sole involvement of the employer or employee organization is without endorsement to permit the sponsor to publicize the program to employees or members, to collect contributions through payroll deductions or dues checkoffs and to remit them to the sponsor; and
4. the employer or employee organization receives no consideration in the form of cash or otherwise, other than reasonable compensation for services actually rendered in connection with payroll deductions or dues checkoffs.

The question of whether the distribution of FCB plan assets to Ms. Levine qualifies for special tax treatment and the question of whether the individual retirement account Ms. Levine proposes to establish meets the requirements of Code section 408(a) are matters within the jurisdiction of the Internal Revenue Service. Thus, this opinion does not purport to make any determination with regard to such matters. Inasmuch as regulation section 2510.3-2(d) applies to individual retirement accounts only when they meet the requirements of Code section 408(a) and inasmuch as no record of an Internal Revenue Service determination that the fund Ms. Levine proposes to establish will meet the requirements of Code section 408(a) has been submitted, this opinion is limited to determining whether the fund you describe meets the requirements set forth in regulation section 2510.3-2(d)(1)(i) through (iv) without expressing any opinion as to whether it is the type of fund to which regulation section 2510.3-2 (d) is properly applied.

Based on the facts and representations you have submitted, and without deciding whether FCB or H&L constitutes the employer, we have determined that the proposed fund and prospective transaction which you described meet the requirements of regulation section 2510.3-2(d)(1)(i) through (iv) if that section of the regulations is applicable to the fund. We make this determination because (1) neither the distribution of FCB plan assets to Ms. Levine nor the sale of H&L stock to the trustee of the fund for fair market value constitutes an employer contribution to the fund; (2) you have represented that Ms. Levine's establishment of, and participation in, the fund is completely voluntary, notwithstanding any agreement by her with FCB to purchase H&L stock; (3) there is no employer involvement in the fund Ms. Levine proposes to establish which goes beyond the permissible employer involvement described in regulation section 2510.3-2(d)(1)(iii); and (4) no employer receives any consideration in the form of cash or otherwise. With respect to the receipt of compensation, if H&L is the employer, H&L does not receive any consideration in the form of cash or otherwise in connection with the proposed sale of the H&L stock by FCB to the fund, and H&L receives no consideration in cash or otherwise in connection with the fund. Further, if the employer is FCB or is both FCB and H&L, it is the opinion of the Department that the monies received by FCB as a result of the sale of the H&L stock to the fund are not the type of consideration contemplated by regulation section 2510.3-2(d)(1)(iv).

This letter constitutes an advisory opinion under ERISA Procedure 76-1. Accordingly, this letter is issued subject to the provisions of the procedure, including section 10 thereof relating to the effect of advisory opinions.